Fitch Ratings warns Russian bond default ‘imminent’

By BBC and Reuters published by Times of India

A LEADING ratings agency has warned Russia is likely to soon default on its debts, as it downgraded the country’s bonds further into “junk” territory.

Fitch Ratings slashed its assessment of Russia to almost the bottom of its scale, just days after downgrading it from investment status.

It is the latest blow to the country’s creditworthiness in the wake of its invasion of Ukraine.

This week, Moscow said its bond payments may be affected by sanctions.

“The further ratcheting up of sanctions, and proposals that could limit trade in energy, increase the probability of a policy response by Russia that includes at least selective non-payment of its sovereign debt obligations,” Fitch said.

The announcement from Fitch came after the US and UK said they will ban Russian oil, as they step up the economic response to the invasion of Ukraine.

US President Joe Biden said the move targeted “the main artery of Russia’s economy”.

Meanwhile, the European Union said it will end its reliance on Russian gas.

As a major exporter of energy, the measures are aimed to hit Moscow’s finances, although experts warn this is also likely to send the price of oil and natural gas higher on global markets.

On Sunday, Moscow told investors that it would continue to service its sovereign debt.

However, it warned that international sanctions imposed on its energy industry could limit its ability and willingness to meet its obligations.

“The actual possibility of making such payments to non-residents will depend on the limiting measures introduced by foreign states in relation to the Russian Federation,” the finance ministry said in a statement.

If Russia did fail to make payments on its debt it raises the possibility of the first major default on the country’s sovereign bonds since the wake of the 1917 Bolshevik revolution.

In recent days, rival ratings agencies Moody’s Investors Service and S&P Global Ratings have also slashed their assessments of Russian sovereign debt.

It means the country’s sovereign debt is now considered to be below investment grade, or in “junk” territory, by three of the world’s major ratings companies.

S&P said the move followed measures it believed would “substantially increase the risk of default”.

Shane Oliver of investment management company AMP Capital believes a default on Russian debt was “effectively already occurring”.

“It will only service it in much depreciated roubles anyway and foreign investors are offloading it at fire sale prices. Fortunately the global exposure to it is relatively low,” he told the BBC.

The Russian rouble has also hit record lows as countries around the world imposed increasingly tough sanctions on the country.

Last month, Russia’s central bank more than doubled its interest rate to 20% in an attempt to stop the value of its currency from sliding further.

Dozens of global brands – including McDonald’s, Coca-Cola and Starbucks – have halted business in Russia due to the invasion of Ukraine.

The conflict and ensuing sanctions have played havoc with global supply chains, sending prices soaring not only for food and energy but also key raw materials like aluminum and nickel.

The London Metal Exchange was forced to halt trading in nickel – crucial for making stainless steel and electric vehicle batteries – on Tuesday as prices doubled to more than $100,000 per tonne due to worries about Russian supply.

Meanwhile Russia said it is ready to provide humanitarian corridors today (Mar. 9) for people fleeing Kyiv and four other Ukrainian cities, as the number of refugees created by the biggest assault on a European country since World War Two surpassed 2 million.

Mikhail Mizintsev, head of Russia’s National Defence Control Centre, was quoted as saying by the Tass news agency that Russian forces would “observe a regime of silence” from 10 a.m. Moscow time (2 p.m. in Thailand) to ensure safe passage for civilians wishing to leave Kyiv, Chernihiv, Sumy, Kharkiv and Mariupol.

It was unclear if the proposed routes would pass through Russia or Belarus, conditions previously opposed by the Ukrainian government.

Civilians fled the besieged city of Sumy yesterday in the first successful “humanitarian corridor” opened since Russia’s invasion. Ukraine accused Russian forces of shelling another evacuation route, from Mariupol in the south of the country.

Polish Planes

As Western military aid poured into Ukraine over the Polish and Romanian borders, the United States turned down a surprise Polish offer to transfer MiG-29 fighter jets to a US base in Germany to help replenish Ukraine’s air force.

The prospect of flying combat aircraft from Nato territory into the war zone “raises serious concerns for the entire Nato alliance,” the Pentagon said.

In the seaside Ukrainian town of Mariupol, people were fast running out of electricity, heat, food, and drinking water after more than a week of bombardment, the International Committee of the Red Cross said.

“The situation in Mariupol is apocalyptic,” Red Cross spokesperson Ewan Watson said.

Many tried to leave yesterday along a safe corridor but Ukraine’s foreign ministry said Russian forces violated a ceasefire and shelled it.

Moscow denies targeting civilians.

Elsewhere, Ukrainian troops repulsed a Russian attempt to enter the eastern city of Kharkiv yesterday and foiled a planned operation by 120 Russian paratroopers near the border, regional Governor Oleh Synehubov said.

Five people, two of them children, were killed late last evening when Russian planes attacked the town of Malyn, northwest of Kyiv, and destroyed seven houses, the state emergency service said. Reuters was unable to corroborate.

Ukraine’s defence ministry said Vitaly Gerasimov, first deputy commander of Russia’s 41st army, was killed on Monday, the second Russian major general killed during the invasion. Russia’s defence ministry could not be reached for comment.

Within Russia, the war has led to a severe new crackdown on dissent, with the last remaining independent media largely shut last week and foreign broadcasters banned.

CAPTIONS:

Top: Russian rouble notes. Photo: Getty Images and published by BBC

First insert: People walk past the windows of a closed Dior shop in Moscow. Photo EPA ad published by BBC

Secornd insert: A view shows buildings damaged by recent shelling during Russia’s invasion of Ukraine in Kharkiv, Ukraine, yesterday, Mar. 8, 2022. Photo: Reuters/Oleksandr Lapshyn and published by Channel NewsAsia

Home Page: Woman and children wait for evacuation buses to arrive. Photo: Getty Images/Ukrainian Presidency published by BBC

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